2004 Instructions for Form 1040 (ALL) - Supreme Law Firm

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• Owned the vehicle and use the standard mileage rate for the first year you placed the vehicle in service, or • Leased the vehicle and are using the standard mileage rate for the entire lease tion of income. You can also elect under section 179 to expense part of the cost of certain property you bought in 2004 for use in your business. See the Instructions for Form 4562 to figure the amount to enter on line 13. and dependents, even if you do not itemize your deductions. See the instructions for Form 1040, line 31, for details. period (except the period, if any, before Line 15 1998). When to attach Form 4562. You must Deduct premiums paid for business insur- If you deduct actual expenses: complete and attach Form 4562 only if: ance on line 15. Deduct on line 14 amounts • Include on line 9 the business portion • You are claiming depreciation on paid for employee accident and health inof expenses for gasoline, oil, repairs, insura reserve for self-insurance or premiums property placed in service during 2004; surance. Do not deduct amounts credited to ance, tires, license plates, etc., and • You are claiming depreciation on • Show depreciation on line 13 and rent listed property (defined below), regardless paid for a policy that pays for your lost or lease payments on line 20a. of the date it was placed in service; or earnings due to sickness or disability. For • You are claiming a section 179 ex- details, see Pub. 535. If you take the standard mileage rate, pense deduction. multiply the number of business miles by 37.5 cents. Add to this amount your park- If you acquired depreciable property for ing fees and tolls, and enter the total on line the first time in 2004, see Pub. 946. Lines 16a and 16b 9. Do not deduct depreciation, rent or lease Interest allocation rules. Listed property generally includes, but The tax treatment payments, or your actual operating exis not limited to: of interest expense differs depending on its penses. type. For example, home mortgage interest • Passenger automobiles weighing For details, see Pub. 463. and investment interest are treated differ- 6,000 pounds or less; ently. “Interest allocation” rules require Information on your vehicle. If you claim • Any other property used for transpor- you to allocate (classify) your interest exany car and truck expenses, you must proitself to personal use, such as motorcycles, the correct line of your return and receives tation if the nature of the property lends pense so it is deducted (or capitalized) on vide certain information on the use of your vehicle by completing one of the following. pickup trucks, etc.; the right tax treatment. These rules could • Schedule C, Part IV, or Schedule • Any property used for entertainment affect how much interest you are allowed to C-EZ, Part III, if: (a) you are claiming the or recreational purposes (such as photo- deduct on Schedule C or C-EZ. standard mileage rate, you lease your vehi- graphic, phonographic, communication, cle, or your vehicle is fully depreciated, and and video recording equipment); Generally, you allocate interest expense (b) you are not required to file Form 4562 by tracing how the proceeds of the loan • Cellular telephones or other similar for any other reason. If you used more than were used. See Pub. 535 for details. telecommunications equipment; and one vehicle during the year, attach your • Computers or peripheral equipment. If you paid interest on a debt secured by own schedule with the information re- your main home and any of the proceeds quested in Schedule C, Part IV, or Schedule Exceptions. Listed property does not in- from that debt were used in connection C-EZ, Part III, for each additional vehicle. clude photographic, phonographic, com- with your trade or business, see Pub. 535 to • Form 4562, Part V, if you are claim- munication, or video equipment used figure the amount that is deductible on ing depreciation on your vehicle or you are exclusively in your trade or business or at Schedule C or C-EZ. required to file Form 4562 for any other your regular business establishment. It also reason (see the instructions for line 13). does not include any computer or periph- How to report. If you have a mortgage on eral equipment used exclusively at a reguthan your main home), enter on line 16a the real property used in your business (other lar business establishment and owned or leased by the person operating the estab- interest you paid for 2004 to banks or other Line 11 lishment. For purposes of these exceptions, financial institutions for which you re- Enter the total cost of contract labor for the a portion of your home is treated as a regu- ceived a Form 1098 (or similar statement). tax year. Do not include contract labor dethe interest on line 16b. lar business establishment only if that por- If you did not receive a Form 1098, enter ducted elsewhere on your return such as tion meets the requirements under section contract labor that you included in Part III. 280A(c)(1) for deducting expenses for the Also, do not include salaries and wages business use of your home. If you paid more mortgage interest than paid to your employees, instead see line 26. is shown on Form 1098, see Pub. 535 to See the instructions for line 6 on page find out if you can deduct the additional C-3 if the business use percentage of any interest. If you can, include the amount on listed property decreased to 50% or less in line 16a. Attach a statement to your return Line 12 2004. explaining the difference and enter “See Enter your deduction for depletion on this attached” in the margin next to line 16a. line. If you have timber depletion, attach If you and at least one other person Form T. See Pub. 535 for details. Line 14 (other than your spouse if you file a joint Deduct contributions to employee benefit return) were liable for and paid interest on programs that are not an incidental part of a the mortgage and the other person received Line 13 pension or profit-sharing plan included on the Form 1098, include your share of the line 19. Examples are accident and health interest on line 16b. Attach a statement to Depreciation and section 179 expense plans, group-term life insurance, and dededuction. Depreciation is the annual dependent care assistance programs. If you of the person who received the Form 1098. your return showing the name and address duction allowed to recover the cost or other made contributions on your behalf as a In the margin next to line 16b, enter “See basis of business or investment property self-employed person to a dependent care attached.” having a useful life substantially beyond assistance program, complete Form 2441, the tax year. You can also depreciate im- Parts I and III, to figure your deductible If you paid interest in 2004 that applies provements made to leased business prop- contributions to that program. to future years, deduct only the part that erty. However, stock in trade, inventories, applies to 2004. and land are not depreciable. Depreciation Do not include on line 14 any contribustarts when you first use the property in tions you made on your behalf as a self-emyour business or for the production of in- ployed person to an accident and health Line 17 come. It ends when you take the property plan or for group-term life insurance. You out of service, deduct all your depreciable may be able to deduct on Form 1040, line Include on this line fees for tax advice recost or other basis, or no longer use the 31, the amount you paid for health insur- lated to your business and for preparation property in your business or for the produc- ance on behalf of yourself, your spouse, of the tax forms related to your business. C-4
also include the amount collected in gross countries. They do not include expenses for Line 19 receipts or sales on line 1. laundry, cleaning and pressing of clothing, Enter your deduction for contributions to a • Real estate and personal property lodging taxes, or the costs of telegrams or pension, profit-sharing, or annuity plan, or taxes on business assets. telephone calls. You cannot use this plans for the benefit of your employees. If • Licenses and regulatory fees for your method on any day that you use the stan- the plan included you as a self-employed trade or business paid each year to state or dard meal allowance (as explained in the person, enter contributions made as an em- local governments. But some licenses, such instructions for lines 24b and 24c). ployer on your behalf on Form 1040, line as liquor licenses, may have to be amor- You cannot deduct expenses for attend- 32, not on Schedule C. tized. See Pub. 535 for details. ing a foreign convention unless it is directly Generally, you must file the applicable • Social security and Medicare taxes related to your trade or business and it is as form listed below if you maintain a penoutside the North American area as within paid to match required withholding from reasonable for the meeting to be held sion, profit-sharing, or other funded-deit. These rules apply to both employers and your employees’ wages. Also, federal unferred compensation plan. The filing employment tax paid. Reduce your deduc- requirement is not affected by whether or tion by the amount shown on Form 8846, employees. Other rules apply to luxury not the plan qualified under the Internal line 4. water travel. Revenue Code, or whether or not you claim • Federal highway use tax. For details, see Pub. 463. a deduction for the current tax year. There is a penalty for failure to timely file these Do not deduct the following on this line. forms. • Federal income taxes, including your self-employment tax. However, you can Lines 24b and 24c Form 5500. File this form for a plan that is deduct one-half of your self-employment not a one-participant plan (see below). On line 24b, enter your total business meal tax on Form 1040, line 30. and entertainment expenses. Include meal Form 5500-EZ. File this form for a • Estate and gift taxes. expenses while traveling away from home one-participant plan. A one-participant • Taxes assessed to pay for improve- for business. Instead of the actual cost of plan is a plan that only covers you (or you ments, such as paving and sewers. your meals while traveling away from and your spouse). • Taxes on your home or personal use home, you can use the standard meal allow- property. ance for your daily meals and incidental For details, see Pub. 560. expenses. Under this method, you deduct a • State and local sales taxes on property specified amount, depending on where you purchased for use in your business. Instead, travel, instead of keeping records of your treat these taxes as part of the cost of the Lines 20a and 20b actual meal expenses. However, you must property. still keep records to prove the time, place, If you rented or leased vehicles, machinery, • State and local sales taxes imposed on and business purpose of your travel. or equipment, enter on line 20a the business the buyer that you were required to collect portion of your rental cost. But if you and pay over to state or local governments. The standard meal allowance is the fedleased a vehicle for a term of 30 days or These taxes are not included in gross re- eral M&IE rate. You can find these rates on more, you may have to reduce your deducperdiem. For locations outside the conti- ceipts or sales nor are they a deductible the Internet at www.policyworks.gov/ tion by an amount called the inclusion expense. However, if the state or local gov- amount. See Pub. 463 to figure your incluare published monthly. You can find these ernment allowed you to retain any part of nental United States, the applicable rates sion amount. the sales tax you collected, you must include that amount as income on line 6. rates on the Internet at www.state.gov. Enter on line 20b amounts paid to rent or lease other property, such as office space • Other taxes and license fees not re- See Pub. 463 for details on how to fig- in a building. lated to your business. ure your deduction using the standard meal allowance, including special rules for partial days of travel. Line 24a Business meal expenses are deductible Line 21 only if they are (a) directly related to or Deduct the cost of repairs and maintenance. Enter your expenses for lodging and trans- associated with the active conduct of your Include labor, supplies, and other items that portation connected with overnight travel trade or business, (b) not lavish or extravado not add to the value or increase the life for business while away from your tax gant, and (c) incurred while you or your of the property. Do not deduct the value of home. Generally, your tax home is your employee is present at the meal. your own labor. Do not deduct amounts main place of business regardless of where you maintain your family home. You canspent to restore or replace property; they You cannot deduct any expense paid or not deduct expenses paid or incurred in incurred for a facility (such as a yacht or must be capitalized. connection with employment away from hunting lodge) used for any activity usually home if that period of employment exceeds considered entertainment, amusement, or 1 year. Also, you cannot deduct travel expenses for your spouse, your dependent, or Also, you cannot deduct membership recreation. Line 22 any other individual unless that person is Generally, you can deduct the cost of supyour employee, the travel is for a bona fide dues for any club organized for business, plies only to the extent you actually conbusiness purpose, and the expenses would pleasure, recreation, or other social pur- sumed and used them in your business pose. This includes country clubs, golf and otherwise be deductible by that person. during the tax year (unless you deducted athletic clubs, airline and hotel clubs, and them in a prior tax year). However, if you Do not include expenses for meals and clubs operated to provide meals under conhad incidental supplies on hand for which entertainment on this line. Instead, see the ditions favorable to business discussion. you kept no inventories or records of use, instructions for lines 24b and 24c on this But it does not include civic or public serv- you can deduct the cost of supplies you page. ice organizations, professional organiza- actually purchased during the tax year, pro- Instead of keeping records of your acassociations), business leagues, trade as- tions (such as bar and medical vided that method clearly reflects income. tual incidental expenses, you can use an optional method for deducting incidental sociations, chambers of commerce, boards expenses only if you did not pay or incur of trade, and real estate boards, unless a meal expenses on a day you were traveling principal purpose of the organization is to Line 23 away from your tax home. The amount of entertain, or provide entertainment facili- You can deduct the following taxes and the deduction is $3 a day. Incidental exlicenses on this line. penses include fees and tips given to por- There are exceptions to these rules as ties for, members or their guests. • State and local sales taxes imposed on ters, baggage carriers, bellhops, hotel well as other rules that apply to sky-box you as the seller of goods or services. If you maids, stewards or stewardesses and others rentals and tickets to entertainment events. collected this tax from the buyer, you must on ships, and hotel servants in foreign See Pub. 463. C-5
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Note. This booklet does not contain
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What is IRS e-file? It’s the fast
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Tax Return Page Reference Questions
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Quick and Easy Access to Tax Help a
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Topic TeleTax Topics No. Subject No
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Before You Fill In Form 1040 See Ho
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Chart B—For Children and Other De
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Form Item and Box in Which it Shoul
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Line 2 December 31, 2004, you were
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Form 1040—Lines 7 and 8a less tha
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gross income was over $139,500 ($69
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Form 1040—Lines 16a and 16b Age (
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Form 1040—Lines 20a and 20b Socia
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Form 1040—Line 25 IRA Deduction W
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Form 1040—Lines 27 Through 29 for
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Line 35 Include in the total on lin
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Form 1040—Lines 41 and 43 Tax Tab
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Line 44 • Tax-exempt interest fro
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Page 45 and 46: Worksheet A—Earned Income Credit
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2004 Instructions for Form 1040 (ALL) - Supreme Law Firm

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